Tensions lurk behind Pence's 'partnership' visit to Indonesia

[April 13, 2017]  By Kanupriya Kapoor and Fransiska Nangoy

JAKARTA (Reuters) - Washington has billed Vice President Mike Pence's visit to Indonesia next week as a booster for the Strategic Partnership between the world's second- and third-largest democracies, but a raft of bilateral tensions could sap the goodwill from his trip.

Pence's counterpart in the world's most populous Muslim country has voiced worries about U.S. President Donald Trump's immigration policy, which critics say is biased against Muslims, and about his "America First" mantra on trade and investment.

"We in Indonesia never change. The change is there. That's why we're asking them now, 'what is your policy now on the economy, on democracy, now that Trump is in power?'," Vice President Jusuf Kalla told Reuters on March 31.

"What does it mean, 'America first'? I can say, too, 'Indonesia first' if you say 'America first'."

Indonesia is one of 16 countries against which the United States runs a trade deficit that will be investigated by the Trump administration for possible trade abuses.

Trump's combative approach will not sit easily with Indonesia, where economic nationalism and protectionist tendencies have flourished since a slump in commodity prices in recent years slammed the brakes on economic growth.

"Unfortunately I do see a hardening of attitudes on our side," said a senior Indonesian government official, who declined to be named. "And it's of particular concern because we're on that list of 16 countries ... that are going to be investigated."

The official said a tougher stand by Indonesian authorities had also contributed to a series of disputes with U.S. companies, including Alphabet Inc's Google, miner Freeport-McMoRan Inc and financial services giant JP Morgan Chase & Co.

A SERIES OF FACE-OFFS

Indonesia has dueled with Google over back taxes and fines running into hundreds of millions of dollars, and with Freeport in a contract row that has crippled operations at the world's second-largest copper mine, Grasberg.

It also dropped JP Morgan as a primary bond dealer after the bank's research analysts issued a negative report on the country in November.

"It's a very unfortunate series of issues which all happen to be American," said the official, who expects them to come up in private during Pence's visit. Indonesia is the third stop on an April 15-25 tour that includes South Korea, Japan and Australia.

Google declined to comment for this report, and JPMorgan did not respond to a request for comment.

Freeport Indonesia spokesman Riza Pratama said: "This visit is happening entirely independent of our current negotiations with the government of Indonesia."

U.S. Vice President Mike Pence speaks about the American Health Care Act during a visit to the Harshaw-Trane Parts and Distribution Center in Louisville, Kentucky, U.S., March 11, 2017. REUTERS/Bryan Woolston

However, billionaire investor Carl Icahn, Freeport's third-biggest shareholder and now a special adviser to Trump, has described Jakarta's tactics over the mining contract as "disingenuous and insulting", according to the New York Times.

Another potential irritant is biodiesel.

The U.S. National Biodiesel Board (NBB), a producer group, has petitioned the U.S. government to impose anti-dumping duties on biodiesel from Indonesia and Argentina, claiming they have flooded the U.S. market.

"This is one of the issues that we have asked the trade ministry to bring to the meeting (with Pence)," Paulus Tjakrawan, a director at the Indonesia Biofuel Producers Association, told Reuters.

"Our hope is for the government to be firm ... Otherwise we will be taken advantage of," he said. "Not to act like thugs but, for example, if they put barriers to our exports, why not stop importing some of their goods?"

Despite the strains, the government official said Indonesia would be careful to start its relationship with the Trump administration on the right foot.

Indonesian President Joko Widodo's approach to foreign policy has been led more by economic interests than geopolitical considerations: he has pursued increased trade and investment from China but keeps a diplomatic distance from Beijing and established a strategic partnership with Washington under former President Barack Obama.

U.S. ambassador to Indonesia, Joseph R. Donovan Jr, said in a statement last week that Pence's visit reflected a continued commitment to that partnership, would deepen economic engagement and boost regional security cooperation.

"The U.S. embassy here certainly is going to great lengths to make the visit a success," said the Indonesian official. "My impression is he's (Pence) not going to ruffle feathers in public, he's not going to cause a ruckus."

(Additional reporting by Eveline Danubrata and Fergus Jensen; Editing by Lincoln Feast)

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